Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Changing Environments 1 Environmental Change Environmental Complexity Resource Scarcity Uncertainty Environmental Change Environmental Complexity Resource Scarcity Uncertainty Characteristics of Changing External Environments 1 1

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Environmental Change Environmental Change is the rate at which a company’s environments change  stable environments  dynamic environments Punctuated equilibrium theory Companies cycle through long, stable periods and shorter, dynamic environments.

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Punctuated Equilibrium: U.S. Airline Industry 3 1.1

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Environmental Complexity Environmental Complexity: the number of external factors in the environment that affect organizations Simple environmentsComplex environments

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Resource Scarcity Resource Scarcity The degree to which an organization’s external environment has an abundance or scarcity of critical organizational resources

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Uncertainty 6 1.4

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved External Environment 7 2 2

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Components of the General Environment 8 Economy Technological trends Sociocultural trends Political / Legal trends 2 2

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Economy Growing vs. shrinking economies Predicting future economic activity Business confidence indices 9 2.1

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Technological Component 10 Information Output Input Technology-- Knowledge Tools Techniques Technology-- Knowledge Tools Techniques Raw Materials Services Products 2.2

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Impact of Technology Technology can be a great benefit or a daunting threat. MP3 players have created a tremendous new business 11 opportunity for some, like Apple, Creative, and other manufacturers. But record labels have suffered from the rapid acceptance of digital music and persistent file swapping.

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Sociocultural Component Sociocultural Components – Demographic changes – Changes in behavior, attitudes, and beliefs

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Demographics Example

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Political / Legal Component 14  Legislation  Regulations  Court decisions Managers must be educated about the laws, regulations, and potential lawsuits that could affect business Web Link 2.3

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Specific Environment Customer Competitor Supplier Industry Regulation Advocacy Group

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Customer Component 16 Reactive customer monitoring  responding to problems, trends, and events Proactive customer monitoring  anticipating problems, trends, and events Monitoring customer wants and needs is critical for business success 3.1

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Competitor Component 17 Competitive Analysis Deciding who your competitors are Anticipating competitors’ moves Determining competitors’ strengths and weaknesses 3.2

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Supplier Component 18 Opportunistic Behavior Suppliers Buyer Dependence Supplier Dependence Relationship Behavior 3.3

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Industry Regulation Component Industry Regulation Consists of regulations and rules that govern the business practices and procedures of specific industries, businesses, and professions

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Federal Regulation Agencies 20 Consumer Product Safety Commission Department of Labor Environmental Protection Agency Equal Employment Opportunity Commission Federal Communications Commission Federal Reserve System Federal Trade Commission Food and Drug Administration National Labor Relations Board nlrb.gov Occupational Safety and Health Administration Securities and Exchange Commission 3.4

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Cost of Compliance Researchers studied U.S. manufacturers and the cost they incur complying with the 25 major federal regulations. Researchers found: There are about 300,000 manufacturing companies in the U.S. Each company spends roughly $2.2 million 21 So, the aggregate cost of complying with federal regulations is roughly $660 billion And that’s just for manufacturing.

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Dealing with Gifts and Suppliers Guidelines to Avoid Conflicts of Interest  There’s no such thing as a free lunch  Meals and entertaining are valid business  No gifts worth more than $25 in value  No cash or cash equivalents  No discount on goods and services  No stock in suppliers’ companies  Don’t allow personal friendship to influence decisions Guidelines to Avoid Conflicts of Interest  There’s no such thing as a free lunch  Meals and entertaining are valid business  No gifts worth more than $25 in value  No cash or cash equivalents  No discount on goods and services  No stock in suppliers’ companies  Don’t allow personal friendship to influence decisions

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Advocacy Groups Advocacy Groups  Groups of concerned citizens who band together to try to influence the business practices of specific industries, businesses, and professions  Techniques to try to influence companies  public communications  media advocacy  product boycotts

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Advocacy Groups 24 PETA is a well-known advocacy group that attempts to influence consumers and companies to pursue animal-friendly practices.

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Making Sense of Changing Environments 25 Acting on Threats and Opportunities Interpreting Environmental Factors Environmental Scanning EvaluatingExternalEnvironmentsEvaluatingExternalEnvironments 4 4

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Environmental Scanning 26  Environmental scanning:  searching the environment for events or issues that might affect an organization keeps companies current on industry factors reduces uncertainty alters organizational strategies contributes to organizational performance 4.1

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Interpreting Environmental Factors Environmental Scan Opportunities? Threats?

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Acting on Threats and Opportunities Cognitive Maps  simplified models of external environments  depicts how managers believe environmental factors relate to possible organizational actions

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Internal Environments Internal Environment Consists of the trends and events within an organization that affect the management, employees, and organizational culture  important because it affects what people think, feel, and do at work  organizational culture is the set of key values, beliefs, and attitudes shared by organizational members

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved The Organization’s Culture Organizational Culture – A system of shared meanings and common beliefs held by organizational members that determines, in a large degree, how they act towards each other. – “The way we do things around here.” Values, symbols, rituals, myths, and practices – Implications: Culture is a perception. Culture is shared. Culture is descriptive. 30

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Strong versus Weak Cultures Strong Cultures – Are cultures in which key values are deeply held and widely held. – Have a strong influence on organizational members. Factors Influencing the Strength of Culture – Size of the organization – Age of the organization – Rate of employee turnover – Strength of the original culture – Clarity of cultural values and beliefs 31

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Benefits of a Strong Culture Creates a stronger employee commitment to the organization. Aids in the recruitment and socialization of new employees. Fosters higher organizational performance by instilling and promoting employee initiative. 32

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Creation and Maintenance of Organizational Cultures 33 Organizational Heroes Organizational Stories Company Founder 5.1

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Successful Organizational Cultures 34 Adapted from Exhibit 3.7 Employee Satisfaction Employee Satisfaction Quality Consistency Adaptability Involvement Clear Vision Sales Growth Sales Growth Return on Assets Return on Assets Profits D.R. Denison & A.K. Mishra, Organization Science 6 (1995):

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Levels of Organizational Culture 35  Symbolic artifacts  Behaviors  Symbolic artifacts  Behaviors 1. Surface Level SEEN  What people say  How decisions are made  What people say  How decisions are made 2. Expressed Values and Beliefs HEARD  Beliefs and assumptions  Rarely discussed  Beliefs and assumptions  Rarely discussed 3. Unconsciously Held Assumptions and Beliefs BELIEVED Adapted from Exhibit

Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved Changing Organizational Cultures Behavioral addition – is the process of having managers and employees perform a new behavior Behavioral substitution – is having managers and employees perform a new behavior in place of another behavior Change visible artifacts – such as the office design and layout, company dress codes, etc